Italian Economy Struggles to Recover

In the first three months of 2013, Italian GDP contracted for a 7th straight quarter and the country is now facing its longest recession in 20 years. The current economic weakness reflects the deterioration of households' purchasing power which is likely to worsen in the short-term. Indeed, tight fiscal consolidation policy and rising unemployment continue to undermine consumer and business confidence.

In fact, in the fourth quarter of 2012, the consumption plunged to a decade-low level and is likely to decline further through 2013 as consumer confidence was reported near its historic low in April. Additionally, in March, the jobless rate was reported at 11.5 percent, only 0.2pp below its all-time high and youth unemployment soared to 36.3 percent. The business sector outlook is not brighter. In March, industrial production decreased 5.3 percent and is now 25 percent lower than at its peak five years ago. Furthermore, business confidence remains very low indicating there is still no industry rebound on the horizon. To make things worse, the political environment is very unstable. In April, following a 2-month deadlock in which parties failed to form a government, the President appointed Enrico Letta as Prime Minister and put together a three-party coalition to lead the country.

Italy's economy has been in recession for seven quarters in a row. In the first quarter of 2013, the GDP contracted 2.3 percent year-on-year and 0.5 percent quarter-on-quarter.

In April, consumer confidence fell to 90.5, only 0.7 points above its historic low recorded in January of 2013. As such, retail sales have been falling since April of 2012 and contracted 3.0 percent yoy in March.

In May, business confidence was reported near historic lows. Industrial production has been contracting since September of 2011 and fell 5.2 percent yoy in March of 2013.

In March, the jobless rate was unchanged at 11.5 percent. This is only slightly down from the all-time high of 11.7 percent recorded in January.

Nuno Fontes | nuno@tradingeconomics.com5/29/2013 9:09:43 AM

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